Beverly Twing - Shelton Investor Group Len Perham - Chief Executive Officer Jim Sullivan - Chief Financial Officer.

Gary Mobley - Benchmark Lee Yih - Layman's Foundation.

Good morning, and welcome to the MoSys Third Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today’s conference call, instructions will be given for the question-and-answer session.

[Operator Instructions] As a reminder, this conference call is being recorded today, Friday, November 4, 2016. I would like to turn the call over to Beverly Twing of Shelton Investor Group Investor Relations. Beverly, please go ahead..

Thank you, Andrew. Good morning, everyone. Joining me on today’s call are Len Perham, MoSys’ President and Chief Executive Officer; and Jim Sullivan, Chief Financial Officer.

Before we begin today's discussion, I would like to remind everyone, this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties.

Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities & Exchange Act of 1934, which include, but are not limited to, benefits and performance expected from use of the Company’s ICs and embedded memory, and interface technologies; expectations concerning the Company’s execution and results, product production, product development, achievement of IC design wins, timing of shipments of the company’s IC, predictions concerning the growth of the company’s business and future markets and business prospects, strategies, objectives, expectations, or beliefs.

Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the company’s most recent report on Form 10-K filed with Securities and Exchange Commission, in the section titled risk factors, and in other reports that the company files from time to time with the Securities & Exchange Commission.

MoSys undertakes no obligation to publicly update any forward-looking statement for any reason except as required by law, even if new information becomes available or other events occur in the future. Thank you for your attention. I will now turn the call over to Len Perham, CEO of MoSys. Please go ahead, Mr. Perham..

Thank you, Bev. Good morning, everyone. Thank you for joining us today for our third quarter 2016 conference call. We’ll open the call an overview of our third quarter progress. Jim will then review our financial results in more detail. And finally, we’ll open a call for your questions. A few highlights from the previous quarter.

The third quarter was another double digit design win quarter. This is a good result and should position us to match or come close to matching last year's fifty plus win.

These new wins represent a good number of new engagements coupled with an equally good number of repeat customers that is an expansion of our footprint with companies that are already comfortable using our high performance serial I/O bandwidth engines.

We saw a solid BE2 Bandwidth Engine 2 shipments in the third quarter and perhaps even better we saw a definite movement toward production release the MONO 2 [ph] of our first quarter 2014 design wins. We are very gratified by the level of excitement being created by our third product family Programmable Search Engine.

The level of prior to prototyping and preproduction units being ordered is very impressive. This family of products assists our customers in solving meaningful challenges in both the data center and in the emerging cloud systems.

Additionally gross margins moved up sharply this quarter, and we should see continued improvement in the coming quarters, and that's a gross margin for the company as well as gross margin for our integrated circuit business specifically.

Although I'm pleased with our progress, I'm disappointed that production volumes have not yet reached the inflection point that will enable us to achieve our full year revenue target. 2014 design wins are moving toward production release, but the quarter-to-quarter ramp is somewhat disappointing.

Our goal wins to achieve $7 million dollars or more in IC sales in 2016 and the fact is we're probably going to come in at just over $5 million.

Among the causes for the shortfall are delays in the rollout of carriers and in many cases our customer’s new product systems have taken line to developed and move to production than either us or the customer anticipated.

This has been true for both Bandwidth Engine design wins and for LineSpeed design wins where we have anticipated a quicker contribution to revenue. We're starting to see the signs of some of our key fourth quarter 2014 Bandwidth Engine wins move to production, but it is to two quarters a later than either we or our customer partner had forecast.

Unfortunately production timing in order volumes are a function of customer rollouts and platform acceptance and are beyond most is control. That being said I agree to remain the situation of when rather than if IC shipments will increase.

Our design win basis increasing and we are seeing increasing indications that are number of BE2 design wins are moving towards full production release, including increased preproduction orders and 2017 production forecasts. On another note we're very encouraged by the initial adoption in the data center market.

We expect a growth trend will begin to materialize in this area over the coming quarters as more designs get released into production of both existing customers will have multiple copy and paste wins and it new customers.

In the past I’ve said we were focusing on the network infrastructure and I wasn't sure how big a role that would be for us to play in the data center and in the emerging cloud applications arena.

I'm pleased to say that with the newest product family the Programmable Search Engine the answer becomes yes, I believe this can be a real opportunity for us going forward. Taking a deeper look at these most recent design wins reveals that activity has continue to increase since the early part of 2016.

We are getting back to a quarterly double digit design win run rate, which has been our target for some time. The majority of the third quarter wins were for Bandwidth Engine 2 aimed into video and IP security applications with existing customers.

We also secured multiple LineSpeed design wins in the quarter with new customers in the areas of networking, monitoring and module applications. We expect our new aligned speed Bandwidth Engine 3 and Programmable Search Engine product families to start representing a larger percentage of our wins going forward into 2017.

During the third quarter our sales funnel continue to expand resulting in multiple design win opportunities across all the families including strong interest engagements for BE3 and the Programmable Search Engine family. These opportunities range in size and reflect new as well as repeat business with customers worldwide.

The LineSpeed products are garnering more interest both in opportunities and in recent wins. For higher end application the Bandwidth Engine 3 product family provides a performance and size moved. From BE or Bandwidth Engine 2 and alliance well to the latest generation of fuel programmable gate arrays.

One version of the Bandwidth Engine 3 device family we call the Z30 has provisions for direct connection to the Mellanox EZchip NPS-400. We anticipate the roll out of both the new generation of fuel programmable gate arrays and NPUs will provide new opportunities as we go forward into 2017.

As previously mentioned with strong customer interest and the ability to leverage our existing ecosystem the Programmable Search Engines currently progressing ahead of schedule and we expect interest remain strong for this highly differentiated product.

It is possible to some of these designs could see a faster ramp than Bandwidth Engine 2 once architectures are released, because we are serving more data center and edge applications with a year-to-year growth in those segments is larger than the network infrastructure the ramp could indeed be faster.

Currently the [Technical Difficulty] The Programmable Search Engines come support a much broader set of applications and performance tradeoffs in traditional memory architecture or a fixed hardware search device such as a TCAM.

Our high access rate memory and 32 multi-threaded programmable cores allow the Programmable Search Engine to deliver performance comparable to most TCAMs in production today. But it's four times in density. Well introducing the ability to deliver exciting new functions and features not addressed are enabled by hardwired TCAMs.

Our Programmable Search Engine has gone on a fast track essentially was first announced in the second quarter of this year. On last quarter's call we announced our first Programmable Search Engine design wins and initial shipments for some datacenter applications. With the growth of the cloud of the datacenter projected to exceed 20% per year.

We are optimistic of the combination of design wins plus raw market growth rate will provide additional fuel for our revenue growth. We also continue to build out our partnership network during the quarter announcing a relationship with Oricane a provider of algorithm based solutions for accelerating classification and forwarding of Internet traffic.

Together with our Programmable Search Engine and Bandwidth Engine platforms Oricane’s BioCAM search algorithm and software will enable us to provide innovative alternative solutions with TCAM and other traditional memory architectures while enabling new introduction of new feature sets and new capabilities to the end users.

We have pleased to be working with Oricane and among our other key partners such as Xilinx and Intel/Altera team. Turning to LineSpeed. Our wide range of LineSpeed 100 gig supply solutions continue to gain interest from current and new customers.

Design wins are increasing and several new design win opportunities were added to our sales funnel in the third quarter. Market adoption of 100 gig and highest speeds for newer systems is accelerating. This trend expands our LineSpeed opportunities as every hundred gig line card requires retimers and gearbox functionality.

Sampling to a wide variety of customers is going well and we've already received initial prototype orders from a fair number of our recent LineSpeed design wins.

In closing we are indeed disappointed with the continued delays and ongoing uncertainty within the networking infrastructure space in regards to design decisions and the direction of next generation hardware. We believe this market uncertainty is definitely resulted in delays in design win decisions and product launches.

Traditional networking and equipment OEMs and newer datacenter and appliance OEMs are competing across a wider front than in past years. The good news is most is well positioned to serve all of these companies and our customer list includes meaningful players from every segment.

We remain encouraged by the recent traction and volume order opportunities in particular for our new Programmable Search Engine family within our datacenter customer and BE2 for IP security appliances.

We still have several Bandwidth Engine 2 design wins from 2014 and 2015 that are expected to reach production volumes, in the coming quarters which will drive measurable revenue improvement that we've been expecting.

In the meantime, we successfully layer our new design wins from both existing and new products to maintain a healthy pipeline and support continued long term revenue growth. I'm going to now turn the call over to Jim to review our financial results and following with comments in that Q&A session I may have wanted to closing remarks.

Thank you very much.

Jim?.

Thank you, Len and good morning everyone. During the course of my comments I will make several references to non-GAAP numbers. But otherwise indicated each reference will be to an amount that excludes stock-based compensation expense, amortization of recorded intangible assets and restructuring charges.

These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on form 8K which was filed with the Securities and Exchange Commission today and can be found at the Investor Relations section of our website.

Turning now to our third quarter 2016 results. Total revenue was $1.6 million consistent with the prior quarter and compared with $1 million in the third quarter of 2015.

Product revenue from the sale of our integrated circuits with $1.2 million dollars in the third quarter compared with $1.3 million in the second quarter of 2016 and $0.6 million in the prior year quarter.

IC revenue was primarily driven by Bandwidth Engine 2 shipments to our Tier 1 networking in Japanese customers with additional contribution from shipments of our Programmable Search Engine IT's for prototyping for datacenter application.

Product revenue for the first nine months of 2016 was $3.6 million as Len stated we are now targeting total product revenue of $5 million in 2016 as the pace of a quarter-to-quarter product revenue ramp remain somewhat unpredictable and shipment volumes are subject to customers production schedules and market conditions.

Royalty and other revenue for the third quarter of 2016 was $0.4 million compared with $0.3 million in the previous quarter and $0.5 million dollars in the year ago period. Royalty and other revenue is primarily comprised royalties received for semiconductor customers as products include our IP.

GAAP gross margin was 58% in the third quarter compared with 41% last quarter and 22% a year ago quarter. Our product gross margin increased to 45% in the third quarter compared with 25% in the previous quarter.

We expect our continued cost reduction efforts and increased Programmable Search Engine shipments to result in increasing gross margins in the coming quarters.

In terms of our operating expenses for the third quarter total operating expenses on a GAAP basis decreased sequentially to $5.4 million compared with $6.5 million in the previous quarter and $10.3 million in the year ago period.

Third quarter operating expenses included stock-based compensation and amortization expenses of $0.7 million compared with $0.6 million in the previous quarter and $0.8 million in the third quarter of 2015.

Research and development expenses in the third quarter decreased sequentially in year-over-year to $3.9 million compared with $4.9 million in the second quarter of 2016 and $8.8 million in the year ago period.

The decreases reflect lower back end costs across our product portfolio and significantly reduced tape out expenses as there were no tape outs in the third quarter of 2016. The decrease compared with the prior year also represents significantly best in the personnel related costs.

Selling, general and administrative expenses for the third quarter were $1.5 million compared with $1.6 million in the previous quarter and $1.5 million in the year ago period.

On a non-GAAP basis total operating expenses for the third quarter of 2016 were $4.7 million which excludes amortization and intangibles assets and stock-based compensation expenses. This compares with $5.9 million in the previous quarter, and $9.5 million in the year ago period.

We continue to target non-GAAP expenses or approximately $5 million per quarter excluding in a tape out shuttle or significant one time back end expenses.

On a GAAP basis to the net loss for the third quarter of 2016 was $4.7 million or $0.7 per share compared with a net loss of $6 million and $0.09 per share in the prior quarter and a net loss of $10.1 million or $0.15 per share for the third quarter of 2015.

On a non-GAAP basis to the net loss for the third quarter of 2016 with $4 million or $0.0 6 per share, which excluded stock-based compensation and amortization expenses of $0.7 million This compared with a non-GAAP net loss of $5.4 million or $0.08 per share in the previous quarter and a loss of $9.3 million or $0.14 per share in the year ago period.

Net loss per share for the third quarter of 2016 on GAAP and non-GAAP basis was computed using approximately $66.1 million weighted average shares outstanding. Now turning to the balance sheet. As of September 30, 2016 our cash and cash equivalents and investment balance was $4.8 million compared with $16.5 million at June 30, 2016.

Cash burn of the third quarter decreased to approximately $3.8 million compared with a cash burn of $4.4 million in the second quarter of 2016. We remain committed to minimizing cash spend as we await the majority of our customer designs to ramp to production.

In the third quarter the first semiannual interest payment due under outstanding convertible notes was made in kind with the issuance of an additional note to the note holders. The newly issued convertible note has a principal amount of approximately $0.3 million and as terms identical to be outstanding note including the $0.90 conversion price.

As of September 30, 2016, the company had total shares outstanding of $66.3 million. During the third quarter the company completed its Option Exchange Program for its employees, which excluded the CEO and non-employees including members of the board.

The company except of a cancellation eligible options to purchase an aggregate of $4.6 million shares of common stock and issued replacement options covering approximate $3.3 million shares a common stock representing approximately 2% decrease in future dilution.

The replacement options have an exercise price of $0.72 per share in best over three years. As of September 30, 2016, excuse me, our worldwide headcount with 64 employees, compared with 66 as of June 30, 2016 with a majority of our employees in applications, engineering and operations. This concludes my prepared remarks.

At this time, we would like to open the call for question-and-answer session.

Operator?.

[Operator Instructions] Our first question for the day comes from in line of Gary Mobley from Benchmark. Your line is open..

Hi guys, good morning. Happy Friday. Len, as you look at your - what you think will be your top three customers are what you would have thought to then your top three customers, sitting here today the 11 month of 2016.

Could you talk about the fits and starts that - that you’re looking at with respect to these customers in the timing of the production ramp then and what you’re expecting over the coming months from these top three customers?.

So basically rather than talk about customers, let we talk about market spaces. So, for a number of years we’ve been focused very hard on network infrastructure. And why you’re focused on that there are other market segments started to emerge and are in fact growing very rapidly and each has significant players.

One would be the driving need for ever faster and more capable Internet security appliances or sit on the edge of the datacenter. And the other is being in the data center itself, as a datacenter expand now and begins to look like a little ever getting ever larger cloud if you will. And then my personal opinion is the expanding datacenter i.e.

will suddenly be called the cloud and it probably will consume what was known three or four years ago as the network infrastructure. So looking at those changes, I think that we will continue to see a fair number of - we haven’t had very many like next to zero of the design wins cancelling go away.

So I expect that our network infrastructure customers are going to that wins from 2013, 2014, 2015, 2016. I’m going to go into production and we’re forecasting that to happen. At the same time, starting in 2014, we started winning designs in the IP security appliance area and I think those are going to do very well.

We mentioned on this call that some of them are have gone from a few tens of units a quarter to a few hundred units a quarter to now releasing a significant number of products for shipment every week. And we’re very gratified about that.

I mentioned on this call the in the data center market is forecasted by the outside world, if you will dependence to be growing at 20%, 25% a year for the foreseeable future.

And in the whole, we find out that Programmable Search Engine can really serve us some really valuable purposes for designs of the equipment going into both the white box as well as next generated datacenter applications and applications that are existing moves in the direction of the cloud, calling it as software enabled integrated circuit is very accurate.

It has four times the density of the TCAM and if you look down the road to what would be the likely next generation part it would be both faster and still have enormously more capacity than a traditional TCAM. It’s not encumbered by any possibilities of IP infringement.

And it’s looking at it existing market of several hundred million dollars where it brings equal speed much more capacity and an enormously improved features that. The idea that our customer or his customer can write his owned very secure algorithm into these courses of extreme value and of great interest to the customer base.

So we’re getting finally to your question I think that our infrastructure of wins will go into production. I don’t know if they’ll hit the high end of our customer’s forecasts because there’s a lot of dynamics out in their space.

The IP security appliance guys who we’ve done very, very well on with say 20% or 25% of design wins history to date from space, they’re going to do very well and we can see that the repeat businesses are there they’re looking at next generation systems across a wide front.

And finally, in the last four months or so probably 80% of our customer applications help is gone to serving people doing stuff we’re investigating the possibility of using our products in the datacenter. So I think we’ll see the datacenter in the IP security appliance become a more dynamic faster growing business force.

And I think we’ll see all of our network infrastructure wins go into production and I’m not able to tell whether will hit the high end of the medium end or the low end of our customers forecasted growth rates, if you will, I hope answer your question, Gary..

Okay, let me ask a more direct follow-on. I know your lead customers one of your lead customer, has been going through an M&A transaction I think be required just this quarter.

Under the new structure, do you foresee any changes in the design win funnel from that particular customer?.

If I’m anticipating, you correctly it’s well, I don’t see any change in that. I think our customer, our combined customers now and this is looking he’s going to bring out with his existing product family with the possibility of using our products and I think he’s looking at next generation stuff.

And I’d like to breadth that we’re working shoulder-to-shoulder with him on that as well. I haven’t - the M&A going on across the entire integrated circuits space. But the fact of the matter is to date other than the list of potential customers or suppliers on the building materials the changing on a period basis.

I can’t see that’s played badly for a small company was in very innovative products. And I can’t see that a particular M&A action has caused us to lose some opportunities. So I’d say it is it hasn’t been a bad thing for us.

And they perhaps it has customers more interest in doing business with us because they like some opportunity to have multiple sources on their building materials, in some of these large conglomerates no longer want to do business with anybody other than the top three or four companies that they serve..

Okay. Jim, I know ask this question every quarter, and finally I can say congratulations on the gross margin improvement.

And I’m just curious what became to fruition with the stock to transform in the gross margin and could you speak to the sustainability of that gross margin improvement?.

So, I started inventor [ph] of the Jim. I remember our conversations well this is the third or fourth quarter you’ve brought up the gross margin and I take the position that it would just straighten itself out. IC shipments year-over-year are going have very likely more than double.

And I’m probably substantially more than that next week to a guy like myself that grew up building integrated circuits. It’s still noise level compared to what it’s going to be and the ability to amortize more and more units across your fixed cost or amortize or fixed cross costs across more and more units is going to drive it down even further.

We were running a lot of R&D programs in the backend and now we’ve got a 9,000 flows are all set in place. Things are pretty well ironed out. Once you get it ironed out than then people go back and they start taking the cost out of it.

So what we’re really just seeing is, with very low volumes, I think IC gross margin are hopped up into the 40%, 45%, 48%, 49%. We know that if we are match our, the market demand for the Bandwidth Engine family.

Exactly, to the output if you will so that the distribution of products coming off the line is exactly equal to the demand in terms of power and speed, that we can pick up for more because in the middle of developing our Bandwidth Engines are foundry made a change that resulted in our products running faster than we had anticipated or wanted.

So we run sometimes you’re running some distribution faster than any market demand and when we go after our final mass set and we haven’t forecasted that just yet, when we do that I’m going to say we’re going to pick up, we will pick up another 10 points of gross margins, so will be up in the high 50’s low 60’s.

And so was this nothing surprising about this if you had the option you just see the numbers as exist in the company. It would make total sense to you, Gary. So from the IC point of view that’s my comment and Jim may want to add to it from an overall company point of view..

No, I think you’ve covered well on it, it’s frankly Gary, just a result of our cost reductions, improve deals we had started to see these couple of quarters ago.

But obviously under GAAP when you reduce your standard costs you need to amortize the difference in overtime and in our case a couple of quarters to do our frankly low turns at these revenue levels, and now we're seeing the full benefit.

I do see that as sustainable and particularly if we can keep up we had a modest amount of prototyping shipments of PSC in the third quarter which preproduction prototyping units and have a higher price, now that will change when we bring PSC to pretty have that production qualified in some time first quarter of 2017.

But to extend those we can keep that up that will certainly help the margin in the short run, but I definitely see it as sustainable and improving quarter-over-quarter going forward..

Thanks guys. That's it for me..

Thank you, Gary..

Thank you. Our next question comes from the line of Lee Yih from Layman's Foundation. Your line is open. Last call from Lee Yih from Layman’s Foundation we are not getting….

Can you hear me, can you hear me now..

Loud and clear. Thank you..

Okay.

I'm trying to understand the relationship between your backlog and your design wins, I’m trying to understand that relationship and may I design your backlog as when your design wins actually go into production is that - is that the good way to understand what we're that backlog means?.

Is what actually happen is you win a design - if you win to design in the data communications or the telecommunications area from the time you win that design the customer will probably take two years to build the equipment he's going to sell to a service provider or somebody of that ilk.

And then from - and so if anything and then from the time the two years later you might start sending him units, because now he's prototyping his systems and putting him out for trial tests, the past trials at his customers. So you'll see and you'll count on very fast turns out of your factory if you will because you're not looking for much volume.

So orders will come and he'll build, then he'll come along and he'll start to - he’ll stay okay I've got - I'm going to go to the next step now, and he’ll maybe start ordering a few hundred each quarter. And then he’ll still prototyping and he’s winning designs the winning orders from his service providers if you will, and he’s filling his channel.

And then one day if he's a big guy he’s completely he understands what he thinks his market opportunity is, he’s got a bunch of wins, and he's got a significant channel.

So now he’ll place a big order on you, and he'll - and he'll give you some projected run rate and you'll have some agreement on let say that he wants to have 10,000 units a year there’s an example.

He'll probably ask you to carry inventory that can support 20% overage to that, and if he'll - he made place the large order annual buy on you or he may negotiate you have just in time, and give you some forecasts in release on a monthly basis. But so what your backlog will look like will depend on how he goes about doing that.

But I think probably I’ve answer your question sir..

Great. So the backlog to supply has - is when the actual design win kicks in when that customer starting to build his product and he's starting to order from you he still could be prototyping, but that - but the back order I should say could get up to like 10,000 units per year for example.

And may I ask you how much, how valuable or what is an actual numerical amount of your back order at this particular moment or bigger than?.

We wouldn't have any reason to disclose that, I don't think anybody would, I’ve explained you how it works, and we have forecast right now from some of the designs I’ve just mentioned a few minutes ago are starting to ramp up now.

And we're running at a run rate with these guys and it's quite it's considered - if you think that I mentioned there was a few hundred a quarter and then maybe a few hundred a month.

And now you can expect it to as they go about filling the channel is probably be annoyed in some fairly significant number of units per week, but it's far as a backlog its constraint that would be good thing for us to be talking about..

Okay, you have said in the past to this stage you have not most any of your design wins today.

Nobody has pulled back yet any of your previous design wins, is that correct?.

Actually we had customers in a rare occasion to say that they want to upgrade performance and maybe move from a Bandwidth Engine 2 to a Bandwidth Engine 3 or even in one or two cases to move up to a Programmable Search Engine, because it allows them to enrich their future set.

With Bandwidth Engine products if you win the design and you’re on the schematic, it's a proprietary pinout and it's a proprietary function.

So it's very unlikely that you lose those, now on previous calls I’ve talked about the fact it would LineSpeed will trying to build products at optimize capacity and the density traffic move across the wireline, we're competing with the people that are there also in the business and may or may not have the same pinout is.

In that case might put together a half a dozen different boards in his shop and look at equivalent products from ourselves, from Centec from Broadcom and then if you - he's going to - he may select a based on price, he may select based on some performance feature that one guys look better than the other.

So there is - in the initial design win if you move to win the position on the schematic, there is going to be some losses and I had mentioned that in prior quarters, if you had the opportunity to be on the line, and can I expect that that will go forward, the Programmable Search Engine which is just now the new recently announced family.

It is pretty unique too and that it's a function that isn't - hasn't got any monolithic second source. As you win designs there and we get approved on the schematic. It's unlikely that - unlikely that we're going to get displaced. Now some years ago we want to bunch of designs offshore from the United States.

And in general I think that the - our customer didn't do very well in field trials with the service provider he was dealing with.

And so they didn't have to go to much volume, and he didn't and as he tried to recover from that in some cases he switch from Bandwidth Engine 1 to Bandwidth Engine 2 and it slowed down it's his ability to get to market and if he missed his forecast, and we missed ours as a result of that as well.

So that's sort of the dynamics of the business our products the world they sit in sir..

Okay.

And will you have to go to market to raise some more cash or are you comfortable with the current burn rate and even with the slowdown of some of the design wins turning into cash?.

Sitting here with $12.8 million at the end of September, It's likely we will need additional capital. Certainly we're monitoring customer ramps et cetera. And with the ramp obviously we do expect the burn to diminish overtime, and certainly be significantly lower in 2017 compared with 2016.

But certainly part of the dynamic is customers wanting to see a stronger balance sheet on our side. Right now we are very focused on strategic kind of non-dilutive transactions. We have a few of those in play certainly nothing we were ready to talk about in the script, so but we're working through those.

And we'd like to see some mix of strategic non-diluted with some of our at least one of our larger partners working with them, and then probably some additional financing on top of that..

Okay. Thank you.

Do you still have about 85 design wins in the pipeline there, is it near 100 now, right now?.

The sales funnel? Yeah I would say it's in the range of one 100 design wins..

Yes, actually Jim actually - Jim answer the question one, Jim addressed to sales funnel, so I would say the sales funnel, which is stuff that we're trying to win that might be somewhere between imminent to be won or lost to stuff it's going to take anywhere from a quarter to three quarters.

The sales funnel activity is very high right now, and it's very gratifying and it's high for Bandwidth Engine 2, it's very high for the LineSpeed elements, especially some of our LineSpeed elements have features on the IO that aren’t widely available for others. So it makes them unique and valuable to the people who need those features.

As I mentioned particularly the Programmable Search Engine is also generating a fair bit of excitement. Now having said that we've won something in the area of - I'm going to see probably over 100 design wins history to date now.

And I had mentioned this morning that some of the some of the wins from the third and fourth quarter of 2014 are now starting to ramp up. And there we had a very strong fourth quarter in 2014 and so now we should expect to start seeing the wins in 2015 start to ramp up.

So yes there's a majority of those design wins are there, and we can complain about the fact that I'm sure the customers not happy either they has taken longer period for him to ramp and we’ve had forecasted or perhaps to be forecasted. But for the most part haven't gone away as there..

Thank you very much on that..

Thank you ladies and gentlemen that now concludes our question-and-answer session for today. I'd like to turn the call back over to management for closing remarks..

So I just have four comments this morning, one there's a considerable number of our historical design wins that should start ramping quarter-to-quarter in 2017. We're seeing some of that happen right now, and that it needless to say very gratifying. So I just wanted to come back to that in the summary.

Secondly the Programmable Search Engine as we have found that it can solve some major challenges that our customers or potential customers face for products they want to bring out in the datacenter into the cloud segment.

And that is very gratifying those spaces are growing in excess of 20% a year, and there's an enormous drive to get into the market in a hurry. And so we really needed to be in that space, and it looks like we're there with a very good solution that offers features and benefits not widely available from others.

So we're optimistic that we're going to do well with that product in that space.

And secondly we didn't say at this morning it was probably obvious, but we will double our integrated circuit revenue in double or even a little bit better than that hopefully our integrated circuit shipments in 2016 and it's reflected in the back end flows working out to be a little smoother and gross margin moving up into the middle to high 40s and with us some obvious ways we can get up another 10 or 15 points.

And we should expect that we're going to do better than that in 2017. We're anticipating that and looking for signs that it can happen.

And finally I just want to thank you guys for the time and attention you've given at this morning and we look forward to giving you an update again in the near future and we’ll continue to try to do our best to drive shareholder value here. Thank you very, very much. Bye..

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program. And you may all disconnect at this time. Everyone have a great day..